The BBC's turmoil deepens today as Lord Puttnam, the favourite choice to replace Michael Grade as chairman of the corporation, announces he has decided not to apply for the post. Lord Puttnam, the Labour peer and former film producer who was supported by leading corporation insiders and the culture secretary, Tessa Jowell, writes in today's Spectator magazine that after a month of agonising he will not put his name forward to head the BBC trust, its reformed governing body.

In the article he urges the trust to criticise BBC management "in response to issues of public concern, such as the sometimes offensive salaries paid to key talent". The BBC came under fire last year for paying Jonathan Ross a reported £18m over three years.

Lord Puttnam was considered the frontrunner to restore morale at the BBC, still low after Mr Grade's surprise return to ITV. He was also seen as a fierce advocate of the corporation's independence.

"I will continue to be a vocal supporter of the BBC and all that, at its best, it continues to represent," he writes in the Spectator. "As an institution it is far from perfect, but it does continue to offer the possibility of an eventual victory for sanity over nihilism in the evolution of the nation's media output."

The decision is a surprise to some of his friends. Lord Puttnam believed until a short time ago that he would be a candidate. But after talking to his family he decided he could not commit himself fully to the four-days-a-week post.

Lord Puttnam said last night: "It's the right decision for me. The bottom line is that having reached a point in my life at which, living in Ireland, I have never been happier I couldn't find a way of justifying the possibility of upsetting that."

Last night was the deadline for applications for the £140,000 a year post. Possible but unconfirmed candidates for the job include broadcaster David Dimbleby, Chitra Bharucha, vice-chair of the trust, and Liz Forgan, chair of the Scott trust, which owns the Guardian.

Some in Westminster were critical of Lord Puttnam's outspoken remarks in defence of his former colleague Ruth Turner, Tony Blair's senior aide at No 10, who was arrested earlier this month on suspicion of perverting the course of justice in the cash for honours inquiry.

Lord Puttnam was considering becoming a crossbench peer. It is thought the Conservatives would not have opposed his appointment, although John Whittingdale, Tory chairman of the Commons culture, media and sport committee, was publicly sceptical. He remains deputy chairman of Channel 4 - where he recently called on it to show a "duty of care" to Big Brother housemate Jade Goody - as well as president of Unicef, chair of the Teaching Awards Trust, and chancellor of Sunderland University.

In his Spectator article Lord Puttnam says there is a gulf between broadcasters and the government which appears unbridgeable.

"My own experience has led me to the conclusion that the present relationship between our licensed broadcasters and the legislature is typified by suspicion, misunderstanding, and what appears at times to be a quite staggering degree of ignorance, each of the other," he says. But he warns that the trust has to "establish an effective and robust form of governance" at arms length from BBC managers, led by director-general Mark Thompson.

"The trust's willingness to confront, where necessary, the executive board, will be crucial to enshrining the corporation's reputation for integrity, and for ensuring that it is a body genuinely prepared to think again in response to issues of public concern, such as the sometimes offensive salaries paid to key talent," he says.